Banking is essential, banks are not. The future of financial intermediation in the age of the Internet

Hanno Beck
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Hanno Beck: Frankfurter Allgemeine Zeitung

Netnomics, 2001, vol. 3, issue 1, 7-22

Abstract: Abstract This paper examines the question how the future of financial intermediaries and banks as special financial intermediaries may look like in the age of the Internet. The reduction of transaction costs caused by the Internet will reduce the barriers to enter the market for financial products, because there may be no longer a need to run a large system of cost-intensive branches. But as closer examination of the functions of financial intermediaries shows, not everybody can sell and distribute financial products. This is true because of asymmetric information problems in financial business which require an intermediary with a good reputation and because of the need to keep large funds of capital to transform the risk of assets. Both requirements represent an important barrier to enter the market for financial intermediation. Not every financial product will be exposed to more competition due to the rise of the Internet but only products which are standardized and have a low risk. Moreover, large firms with high amounts of capital and a good reputation can be considered as new competitors for banks.

Keywords: banks; banking; financial intermediaries; Internet (search for similar items in EconPapers)
Date: 2001
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Citations: View citations in EconPapers (9)

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DOI: 10.1023/A:1009927623530

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